Apple's $10 billion growth strategy

Apple Computer Inc.'s chief financial officer Fred Anderson and corporate controller Peter Oppenheimer spoke at Morgan Stanley & Co. Inc.'s Semiconductor and Systems conference March 1.

The wide-ranging 40-minute discussion covers a range of topics, with a particular focus on iPods, Apple notebooks, the creative professionals market, and retail. And the discussion confirms Apple's aggressive plans.

"We would like to become a $10 billion company again", the executives said, confirming the company already has control systems in place to enable it to handle more revenues than it takes today.

Looking to 2003's 'Year of the Notebook', analysts asked if Apple holds a strategy for 2004. Anderson said: "We have no specific theme this year, except growth for the company. There are three key drivers: portable -- mobility and wireless communications; the digital lifestyle; and music, iPod, iPod mini, and iTunes Music Store."

Innovation

Innovation is critical. "Because we have this modern Unix-based technology in Mac OS X we are able to innovate much faster than Redmond (Microsoft Corp.). Their last release was in 2001, but you'll see us continue to innovate in our OS."

Apple's financial chiefs stressed how Apple continues to benefit from its strategy of investing in a downturn. "Over the last three years during the downturn, Apple increased research and development to bring out even more innovative products. Our R&D spend climbed from $300 million per year to around $500 million per year now." The executive pointed out the four versions of Mac OS X that Apple has shipped so far, saying: "This is really important; because we have this great foundation we are able to innovate really quickly."

IPod home run

"IPod has been a grandstand home run," Anderson observed, confirming that Apple could have "sold more iPods in the Christmas quarter if it had had greater supply."

He explained Apple's strategy: "We have gone for broad distribution in this market to remain competitive. We now want to focus on continuing to innovate, we don't want to rest on our laurels."

With alliances with PepsiCo Inc., Hewlett-Packard Co. (HP) and America Online Inc. already announced, Anderson said: "We are working on other alliances but have nothing to announce at this time." He added that the HP deal does not preclude Apple from securing similar deals with other manufacturers.

Meanwhile, the company is "hard at work" on bringing iTunes Music Store to other geographies, and agreed the company expects that will "impact more on iPod sales". Anderson observed that iPods are "doing really well in Europe", adding: "I hear in the U.K. it has generated the same sort of cultural change as you see in New York."

With 30 percent market share, Apple's financial executives observed: "It sure feels good to be competing in the total market rather than a five percent share. Management understands this. The HP deal shows a willingness to partner where it makes sense and Apple will continue to employ that philosophy. You walk around the campus and you see people with smiles on their faces because we like to play in a broader market."

Confirming Apple's desire to establish its audio codec as a de facto standard for online music, they said: "With the HP deal we are going to get tremendous momentum behind establishing our standard AAC as the standard."